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To the point

Vaccines represent a major source of market and revenue growth for the industry, but marketers need to develop sharp, targeted and specific campaigns

For many years, the vaccine sector was characterised by government price controls, a mature product group based on a limited set of technologies, and sub-scale participants that included operations run or controlled by the state. These traits constrained the level of investment and the resulting pace of technological innovation. But in recent years, the outlook has brightened for several important reasons.

First, it is now possible to create near blockbuster-level revenue streams. Wyeth's pneumoccocal conjugate vaccine, Prevnar, reached sales of Ä547.4m ($700m) in the US within 15 months of launch, and generated sales of almost Ä1.2bn ($1.5bn) in 2005. Prevnar was the first vaccine to rank among the Top 10 new product launches for a major pharmaceutical company, and it quickly established itself among the top three products in Wyeth's portfolio. Beyond Prevnar, at least seven potential blockbuster products (for HPV, rotavirus, meningitis prophylaxis, pneumococcal disease, and shingles) are likely to be released over the next three years.

As new vaccines have been introduced to replace older technologies and address new disease areas, the pricing environment has also improved. For example, a direct-to-patient (DTP) treatment course that in the US was priced at roughly 30 cents in 1980 is now priced at Ä16 ($20), in part through the substitution of an acellular pertussis antigen.

Vaccine players are increasingly able to capitalise on the health impact of new products, with some emerging vaccines priced at Ä234 ($300) or more per treatment course. Together, a higher number of on-schedule vaccines (ie, those required to be taken by children) and improved pricing has led to a 40 times increase in cumulative expenditures on US childhood immunisations over the past 20 years. The cumulative spend per child has risen from under Ä8 ($10) in the early 1980s to around Ä313 ($400) today.


Better prospects
Vaccine prospects have also improved because of industry consolidation, which has winnowed more than 25 sub-scale players into five major manufacturers: GlaxoSmithKline (GSK), Merck & Co, Sanofi Pasteur, Chiron and Wyeth. These firms have the capabilities and appropriate scale to achieve attractive returns within vaccines. Profit margins for the vaccine units of these firms are comparable with levels experienced in their core pharmaceutical businesses. We estimate that Earnings Before Interest, Taxes, Depreciation and Amortisation (EBITDA) margins (a proxy for cash flow) for the vaccine division of one publicly-held pharmaceutical company is in the low 40 per cent range, compared with 35 per cent in its other businesses.

Because of higher capital expenditures (and the resulting depreciation expense), the margin deteriorates at the Earnings Before Interest and Tax (EBIT) level (26 per cent versus 30 per cent), but is still close to that of the core business. However, profit margins at the corporate or product level only provide a snapshot of one point in time. Just as important is the sustainability of that margin over time. Barriers to entry, such as manufacturing complexity and the need for regulatory compliance expertise, hinder competition from generics in high-income markets and from producers in low-cost locations, resulting in sustained pricing and margins for successful vaccines well beyond patent expiry.

Besides these pricing and scale issues, the public sector is taking substantive steps to spur the development of new vaccines and creation of capacity for existing vaccines. In high-income countries, bioterrorism and pandemic flu initiatives are employing a range of `push' and `pull' mechanisms, from long-term purchasing contracts to increased funding for discovery, which are fuelling private sector investment. In poorer nations, public sector support is helping to create a viable market. The Bill & Melinda Gates Foundation has led the way by giving over Ä1.17bn ($1.5bn) to form and develop the Global Alliance for Vaccines and Immunization (GAVI). Many of the initiatives funded by GAVI and the Gates Foundation have fostered collaborations between the public and private sectors.

One example is the partnership between the Malaria Vaccine Initiative and GSK, demonstrating that vaccines targeted at poorer nations can be developed in a fashion that benefits all parties.

Attracting Investment
These factors have caught the attention of pharmaceutical companies, biotechnology firms and the broader investment community. The vaccine market is expected to more than double between 2004 and 2009, and R&D spending is growing at even greater rates. GSK Biologics, for example, tripled its total R&D spending on vaccines from 13 per cent to 28 per cent of sales during the eight-year period ending in 2000.

Increased spending has helped to fill the pipelines of the major vaccine companies (see table 1, overleaf), and promising candidates now exist throughout various stages of development and span a wide range of current disease areas, including HPV, HSV, influenza, HIV, and SARS, as well as defence-oriented products, such as anthrax and smallpox.

There are likely to be a broad set of new product introductions soon; for example, analysts project that 75 per cent of Merck's vaccine business will be composed of new products over the next five years.

As a result of this activity, vaccines are expected to make up a growing share of the total revenue of the major firms; at Merck, vaccines should grow from less than 5 per cent of revenues today to more than 16 per cent by 2009.

Yet, the promise of this market is not limited to the largest pharma companies. Smaller players are seizing opportunities as well. ID Biomedical, Avant Immunotherapeutics and other biotechnology firms have developed a thriving discovery role as the market expands, comparable to the evolution of other pharmaceutical markets. Avant discovered, developed and licensed its rotavirus compound to GSK, which will allow Avant to extract value as GSK commercialises Rotarix. Biotechnology players are also applying vaccine technologies to non-traditional therapeutic areas, as Avant is doing with cholesterol.

Beyond discovery, players have been innovating in other aspects of vaccine technology as well. For example, the dominant adjuvant over the past 50 years has been simple alum, but companies such as Corixa Corp, Coley Pharmaceutical Group and CSL are developing new adjuvants that may revolutionise the field. Other biotechnology and medical device firms are advancing production mediums and delivery mechanisms.

Capital markets and the investment community have begun to recognise the potential of vaccines, as evidenced by the valuation of vaccine businesses relative to core pharmaceutical businesses. The ratio of market value to revenue is a proxy for the value creation potential of businesses at different scales. This metric serves as a good indicator of the profitability, growth potential and risks of a business. We estimate that the market value:revenue ratio of one major pharmaceutical company's vaccine business is three times that of its core pharma business (11.3 versus 3.6), driven by higher and more sustained profitability and a higher expected growth rate.


Effective Vaccine Marketing
While the outlook for vaccines is positive, the market environment is becoming increasingly complex and dynamic. One of the key opportunities for senior executives to ensure maximum returns is by optimising the effectiveness of marketing.

Vaccines are subject to a broader set of influences than traditional pharmaceuticals, and marketing campaigns need to recognise and address multiple decision points. Effective marketers will have to use broader channels and targeting methods that go beyond traditional approaches.

Many of the emerging vaccine pipeline candidates depart from the traditional vaccine market. Some target adolescents and adults rather than children; some aim to enhance quality of life, rather than preventing diseases with limited treatment options and life-threatening consequences; others pertain to sensitive issues, such as sexual activity, and will require difficult conversations among patients, their families, and their physicians.

Vaccine schedules are also becoming increasingly crowded with recent product launches leading to potential saturation. As a result, this wave of new vaccines will face more complex go-to-market challenges.

Consider the experience of MedImmune in 2003, as it launched FluMist, a live attenuated flu vaccine. A highly efficacious product which is administered nasally, FluMist represented a real innovation. The timing of launch was fortuitous as well, given supply shortfalls in the traditional killed vaccine. Nonetheless, initial results fell far short of expectations, as MedImmune sold roughly 20 per cent of the doses it produced for the 2003-2004 flu season.

While product design features (eg, refrigeration requirements) played a role, this disappointing outcome can be attributed in part to the go-to-market strategy: price levels were more than twice those of the traditional vaccine, marketing was an expensive, mass-market campaign, and distribution primarily through pharmacies constrained availability and awareness. HPV vaccines, currently in phase III trials for Merck and GSK, are among the upcoming class of products that may experience similar challenges.

With so much at stake, effective marketing campaigns developed well in advance of launch will be central to the success of vaccine pipeline candidates. For the highest-stakes products, vaccine marketers should employ a disciplined and rigorous process that accounts for the following factors:

  • Identifying and addressing the full range of key influencers and stakeholders affecting decision making for patients and physicians

  • Tailoring approaches locally, as the roles of the government and key stakeholders vary between countries

  • Managing the resulting multi-channel campaigns necessary to target all spheres of influence through non-traditional means

  • Marketing return on investment (RoI) analytics are essential to evaluate past campaigns and manage future campaigns in a 'test and learn' environment.


Empowered consumers
The number of influential players and stakeholders in the vaccine decision chain has evolved significantly in the past decade. Physicians remain the primary influencer in patient decisions; however, there is an increasing prevalence of other sources of influence that drive treatment adoption.

Consumers are taking greater initiative in requesting vaccines. Rising consumer healthcare costs, declining patient-doctor time and the proliferation of online content is empowering consumers to be more proactive about their healthcare. The situation is also affected by the diversity of locations where vaccines are administered: employers, educational institutions, retirement communities, recreational centres and so on. Vaccine marketers need to understand how to address the needs of these key constituents.

The picture is complicated further by variations across geographies in the roles of influencers. For example, in France, patients receive a vaccine prescription from their physician that they take to the pharmacy which dispenses the vaccine. It is then not uncommon for the patient to store the vaccine at home in their refrigerator until a follow-up appointment with the physician when the vaccine is administered. The pharmacy plays a key role in choosing which competing manufacturer vaccine to stock and is also an educator of patients on the benefits of vaccination. By contrast, most vaccines in the UK are stored and administered in doctors' surgeries. The role of the pharmacy is limited and only tends to come into play when the surgery might need to top up its stocks. Moreover, physicians often receive incentive payments for each high-risk patient vaccinated.

It is also very typical for the physician to send direct mail to promote the benefits of vaccination to local high-risk patients. The US is a very different market again, unique (among other things) in the broad range of locations administering vaccines: leisure centres, workplaces, senior centres, etc. An effective vaccine marketing campaign needs to recognise these differences and tailor approaches locally as a result.

Managing marketing to such a broad range of influencers in the vaccine market can be made more efficient through the use of a campaign management platform that tracks efforts by segment and makes developing segment-specific campaigns much easier. A more recent issue, marketing RoI, plays an essential part in understanding the financial impact of campaigns individually and in combination so that marketing managers can measure trade-offs quantitatively. In essence, the impact of each campaign should be measured statistically to understand the effectiveness of the campaign message, channel, medium and timing.

All of this represents a departure from traditional methods within vaccine organisations which, historically, focused more on R&D and technology. Our experience suggests that outcomes as measured in share, uptake or absolute financial impact can vary considerably based on the marketing strategy.

The upcoming wave of products represents enormous profit potential for companies and investors in the vaccine space, as well as the opportunity to benefit millions of people. But the old rules of thumb may no longer apply, and failures will be increasingly large and visible. To succeed in these new markets, pharma companies and other vaccine developers will need to rethink their strategies, approaches and marketing models.

The author
Andrew Chadwick-Jones is a partner in the London office, and Andrew Pasternak is a partner in the Chicago office, of Mercer Management Consulting (see They can be contacted via: and

2nd September 2008


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